1. With the Y cable delivered by BMW.
In this way the Ipod is doing the job (plays the file and sent it through the aux to the HIFI system of the car. You can handle the Ipod through the iDrive system of the car.
In my opinion the soundquality is not very good in this way.

2. With the original USB cable which came with your Ipod and which you use to conect your Ipod to your computer.
When you use it this way, the Ipod is used as an external harddrive. The files must be WAV, WMA or Mp3 on the Ipod (the ipod itself can't play these files). The car can't play AAC files (the format Ipod use for audio). Playlist you use have to be M3u (very easy to make with the program MediaMonkey).
When you use WMA lossless in this way the soundquality is tremendous.
6FL can automatically index ID3 tags, when you have a lot of songs it takes a lot of time (the first time). When using the Y cable this proces is much faster.